(RTTNews) - France Telecom SA (FTE: News ), Europe's third-largest telecom company, and Denmark-based TDC A/S said Wednesday that they have agreed to combine their respective Swiss subsidiaries, Orange Communication S.A. and Sunrise Communications S.A. In the deal, France Telecom will pay 1.5 billion euros to TDC at closing, and would become a 75% shareholder in the combined entity, while TDC, which is 87.9% owned by Nordic Telephone Company ApS, will hold the remaining 25%. The final transaction is expected in the second half of February 2010.

The companies also noted that both TDC and France Telecom will undertake a confirmatory due diligence before signing the final transaction documentation. The deal closure is conditional upon the approval by the relevant competition and regulatory authorities.

After closing the merger, France Telecom will fully consolidate the combined entity, while TDC will recognize its interest in the company using the equity method. The merger is projected to create substantial value for both shareholders and for France Telecom to be accretive from 2010 in terms of free cash-flow per share and from 2011 in terms of earnings per share.

In the combined entity, current Chief Executive Officer of Orange Switzerland, Thomas Sieber, will be the Chief Executive Officer, and France Telecom will hold the majority of the seats in the Board, which will also be composed of TDC representatives. Christoph Brand will continue as Sunrise's CEO up until the completion of the transaction, and following the closing, Brand will help supervise the initial integration, before moving on to pursue new executive opportunities outside of the combined entity.
According to the companies, the combination is expected to result in the creation of a leading nationwide alternative provider of telecommunications services in Switzerland. The combined entity will account for around 38% of the mobile telephony market and 13% of the fixed broadband connections, with about 3.4 million mobile and 1.1 million fixed and broadband customers. For 2008, the combined entity would have generated total pro-forma revenues of CHF 3.1 billion or 2.0 billion euros, and EBITDA of CHF 809 million or 534 million euros.

The companies noted that the combination and integration of Sunrise and Orange Switzerland is expected to generate synergies with an estimated net present value of 2.1 billion euros or CHF 3.2 billion. Estimated Opex-based synergies, mainly from Network & IT, distribution, marketing and workforce optimisation, would reach an annual run-rate of 132 million euros or CHF 200 million, with cumulative integration costs estimated at 92 million euros or CHF 140 million.

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